Slippery Saudi ties

With full spectrum security and economic realism as top priority, the Modi government has downgraded Arab nations’ importance, particularly Saudi Arabia’s. Instead, it is with members of the Shanghai Cooperation Organisation that India is reinforcing its already historical ties.

“Political judgement is the ability to hear the distant hoofbeats of the horses of history” Otto Von Bismark

Prime Minister NarendraModi’s planned visit to Kingdom of Saudi Arabia (KSA) has lost its importance. For a prime minister, who has drawn flak for being a globe trotter, Saudi Arabian tour is off the radar, at least for the present.

Although Prime Minister Modi had a cordial meeting with Saudi monarch Salman bin Abdulaziz Al Saud on November 15, at the G20 meeting in Ankara, Turkey, it happened in the backdrop of the Paris terrorist strike by ISIL/Al Qaida. At that meeting there was no mention of Modi’s planned visit to the kingdom. There appears to be a discernable change in priorities.

The changed prerogatives are partly, not largely, influenced by the September-end Russian intervention in Syria and the subsequent deterioration in the security environment in the region. Besides, President of Russia Vladmir Putin and Prime Minister Modi have an excellent equation. So do India and Iran. The unwritten rule in international engagements that operate is: “A friend’s enemy cannot be my friend.”
Slippery Saudi ties-1
Russian script runs in West Asia

KSA is clearly recognised as the origin and the main financier for the Takfiri terrorism dominated Islam State of Iraq and the Levant (ISIL) also known derogatively as the Daesh. ISIL is also closely intertwined with the Laskhar extremists in India, who are also responsible for the 2008 Mumbai terrorist strikes and the 2006 Mumbai train blasts.

ISIL has been waging a civil war in Syria to overthrow a secular government headed by President Bashir Asaad, an ophthalmologist by profession. The objective is to replace Asaadrule with a Salafist, one that observes a medieval form of Sharia law. The mayhem in Syria during the last few years has been backed by the US and European establishments. The ostensible reason for the support was to bring democracy into Syria, though it does not exist in Saudi Arabia or Qatar. The real reason, however, is to facilitate a gas pipeline from Qatar to Turkey via Saudi Arabia, Syria and into Europe. Syria has opposed the US sponsored project. The civil war has prompted the intervention of the Russian, Iran and Hizbollah forces to support ally, Asaad. Asaad, who is presently the elected and remains the popular president of Syria a fact that was admitted by the Murdoch’s Fox News.

Saudi’s Arabia’s invasion of Yemen for reinstating Mansur Hadi has also not gone too well with the Indian establishment. But the Saudi intervention is headed nowhere, despite the slaughter of over 7,000 people, mostly non-combatants, women and children.

This war has gone on for nearly eight months, with bombing campaigns supported by United States. Yet, despite this huge human cost, Saudi, that had expected a quick victory, is now losing the war. Casualties are mounting for the Kingdom armed forces. It has also lost territory to the feisty Yemeni forces that include the republics army and Ansarullah fighters who have the support of Iran.

Miscalculations

The miscalculations in the adventures, in turn, have put the Kingdom in ferment. Already there are undercurrents of a rebellion among the royalty and people and the king’s throne is turning wobbly now. Writing in Foreign Policy in Focus magazine, influential columnist, Collin Hallinan wrote, “The House of Saud looks more vulnerable than it has since the country was founded in 1926. Unravelling the reasons for the current train wreck is a study in how easily hubris, delusion, and old-fashioned ineptness can trump even bottomless wealth.”. The winds of regime change bankrolled by the Saudi Arabia have blown back!

For India and the Prime Minister Modi the changed environment in West Asia is clearly a matter of concern. There are genuine fears that the Islamic terrorism could spill over into India. The concerns were also partly influenced by the pressure groups within the BJP, particularly hard-line Hindu factions opposed to any form of appeasement. This is especially since Saudi Arabia has supported the Pakistani military establishment in all their anti-India adventures and their India-centric, nuclear weapon development programmes. Obviously, within the party thought process, irrespective of its support or opposition from South Block, “the enemy’s friend cannot be my friend” logic has appeared to prevail.

There are also other calculations at play in determining Mr Modi’s visit to Saudi Arabia. India became a full member of the Shangai Cooperation Organisation (SCO), political/economic/military bloc founded by Russia, China, Kazhakisthan, Krgyisthan, Tajikisthan and Uzbekisthan. It was in 2005 India was accorded an observer status. India’s membership in the SCO also provides the country access to the Eurasian Economic Community common market. And Iran is also shortly due to become a member of the organisation shortly. Iran is presently an observer.

Almost all the member states of the SCO have been infested with terrorism emanating from the Takfiri-Saudi Arabia nexus. Given that environment, the Prime Minister can ill afford to ignore the apprehensions of other SCO members.

The shift in perception though cannot be credited to the Modi government alone. In fact, the swing began with the ManMohan Singh government in 2012. It was actually during that time India had decided to take an independent line with Iran with the primacy of energy interests in focus resisting pressure from the United States.

There are also issues of diplomatic conduct practised by the KSA that have severely annoyed the Indian government. These include the rape and torture of Nepali women by a KSA Embassy official linked to the royal family. Since the prince had diplomatic immunity, the government was able to do little other than deport him. In addition there is also the issue of hand chopping by another princely family of Saudi Arabia of a woman from Tamil Nadu.

High energy relationships

However, the real strategic issues are economic and in particular energy. India’s present crude petroleum consumption is about 3.7 million barrels per day (MBD) according to the International Energy Agency bulletin. After netting for domestic production, imports are about 2.88 MBD. But, with the Modi government pushing for a sustained real growth in the gross domestic product of about 7.5 per cent to eight per cent a year, then it is axiomatic that energy consumption would increase substantially. That essentially means that petroleum consumption would also increase by at least eight per cent per annum. IEA’s own estimate is that petroleum demand would increase to 4.5 MBD by 2016 and imports would rise to 4 MBD, given low domestic production of barely 820 000 barrels per day.

In that calculus, Saudi Arabia’s importance has diminished for India. A clear sign of the reduced significance was apparent from the fact that Saudi Arabia that was the largest source of crude oil for four years in row has been replaced by Nigeria.

Imports of Saudi crude in October averaged about 640,000 barrels per day. In June Saudi crude imports averaged 730,000 MBD. Import from Nigera on the other hand was 700,000 barrels per day and Iraqi crude shipments is currently about 676000 barrels.

That could further change over the next few months with the end of Western-inspired economic sanctions on Iran. According to IEA, Iran is expected to increase oil exports by atleast another 400,000 barrels per day once the sanctions are lifted. The Tehran times said Iranian Oil minister, BijanNamdarZanganeh has vowed to reclaim the country’s share of global crude oil exports within months of sanctions being lifted and said Tehran will move quickly to open the doors to international oil companies to help boost production.

Till 2010 India imported 426000 barrels per day of Iranian crude. Even during the sanctions, India had preferred to stand by Iran and import petroleum from that region. During the peak sanctions, public sector Indian Oil Corporation and two other refineries had import of Iranian crude averaged 223000 barrels per day last year on a combination of rupee payment and deferred dollar payment basis.

Still, India’s average petroleum import bill is about $115 million per day or $ 44 billion per year at current price of $40 a barrel. However, oil prices have also seen a peak price of $ 140 per barrel in July 2008.

As for gas, India’s imports are presently about 1.5 million tonnes per month, according to the Ministry of Petroleum and Natural Gas. Imports from Qatar involve liquefaction, shipping and re-gasification. That alone adds to at least $5 per mmbtu to the price of gas, meaning that the landed price is closer to $13 per MMBTU, despite the present low prices (India’s gas imports from Qatar are linked to the price of crude oil prices). But these prices have seen higher levels of closer to $ 20 mmbtu, in view of the crude oil linked prices.

Emerging SCO factor

The SCO members are, therefore, likely to play a central role in India’s search for economic and energy security. Central Asia, Iran and Russia are major gas producers in the world. Iran presently has an observer status in the SCO, and membership is likely to be conferred soon. SCO membership means that payment settlement could be allowed on a local currency basis, bypassing the dollar. Russia and China already have an energy trade arrangement on a local currency basis.

Moreover, other SCO members, Central Asian countries, who are not part of the OPEC cartel are already large producers. Central Asian countries, Kazhakisthan, Krgyisthan, Tajikisthan, Turkmenisthan and Uzbekisthan have the potential to produce up to 3.1 million barrels per day and an export potential of up to 2.3- 2.5 million barrels, This is in addition to Russia’s own exports of up to 5.5 million barrels per day of which 80 per cent was destined to Europe.

But even Russia is shifting focus to SCO members as export destination particularly China and India as part of its de-dollarization push. In May 2014, Russia and China had entered into a 30 year gas supply arrangement for 38 billion cubic metres per annum at a total cost of $400 billion. That price translated to about $11.5 per million British thermal units (MMBTU). This is a standard for measuring energy content in gas and therefore used for pricing. The arrangement was followed up with a second gas deal of similar magnitude signed in November 2105. But the sweetener in the deal was neither the long term fixed pricing nor the large supply volume. It was the invoicing and settlement. That settlement was to be done in either Yuan or in Russian roubles.

In fact, after the meeting of Mr Modi and Mr Putin on December 24, 2015, expectations are that a gas supply deal on the same lines as the China- Russia deal would be pushed through. The joint study group on the proposed project has already completed its meeting on November 06, 2015. A final deal on the project would most likely involve a pipeline construction through China. Although the costs would be high, the overwhelming advantage is that it would take away the supply insecurity.

Along with it also go insecurities caused by currency swings. Every dollar swing in petroleum prices translates into a cost or a benefit of about $30 million per day to India. In fact petroleum and gas are largest drivers of foreign currency demand in the country.But currency swings also have attendant macro-economic impact in the form of domestic price situation.

Shifting to bilateral currency settlements obviously have great benefits for economic and energy security. Stronger ties with SCO leaves India with an opportunity to substantially reduce reliance on crude oil and gas supplies from volatile regions like Saudi Arabia and Qatar where settlements are in U S Dollars. Security is assuming over riding precedence. Nobody in India wants a repeat of World Bank or International Monetary Fund forced currency devaluations and austerity regimes of 1991 or 1982 or 1966!

 


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